In our last post, we discussed how compressive disruption is challenging P&C carriers’ top and bottom lines. We also looked at why we see advice-based wealth management as an attractive market for carriers right now. In this post, we’ll highlight why we believe P&C carriers and agents have a unique right to play in this market.
First, let’s remind ourselves of why this market is attractive. Historically low-interest rates and new distribution entrants are pushing carriers to high-capital, low-return segments of the financial service value chain. From a strategic perspective, moving into advice and wealth management offers carriers and agents a potential lifeline amid the vicious cycle of compressive disruption. It can also provide a path to growth and improved customer retention as well as overall brand stickiness through an increased share of wallet.
Based on changing customer expectations and the existing reputation of P&C carriers and agents, we believe that they have a head-start on the competition—if they are agile enough to make use of it.
Let’s explore four reasons P&C carriers and their agents are uniquely positioned to access the advice and wealth management markets and thrive there.
1. Customer expectations are shifting to holistic financial advice
Consumers are increasingly looking to trusted advisors to provide services that run the gamut of financial products. Accenture’s recent Wealth Management consumer survey found widespread and pronounced demand for holistic offerings. Over half of all respondents (56%) want a holistic wealth management offering that includes advice, risk protection and lending. Furthermore, 79% of investors—including 85% of Generation X and 91% of Millennial investors—expect their advisor to offer both banking and insurance products.
Despite this appetite for advice, many consumers are skeptical of value of the advice they are currently getting. According to the same Wealth Management consumer survey, 55% feel the advice they receive is too generic. The same portion (55%) also believe that they could do a better job investing themselves by making decisions that create better returns net of fees.
As consumers increasingly demand financial advice that looks at their whole financial situation and provides specific recommendations, the potential for seeking a net new source of advice, or switching from their current source of advice, is likely to increase. In fact, nearly one in five respondents to our survey switched advisors in the last year. This creates the opportunity for insurers to bundle risk solutions and move into, or partner with, adjacent industries to serve the full range of customer needs relative to advice and wealth management.
2. P&C carriers and agents have ongoing relationships with their clients
Insurers and their agents remain among the most trusted financial institutions. The most recent Accenture Global Banking Consumer Study found that 24% of consumers say they trust their insurer “a lot” to look after their long-term financial well-being. If that doesn’t sound like much, consider that just 8% said the same for retailers. Likewise, 32% of consumers said they trust their insurer “a lot” to protect their data, compared with 21% for online payments companies and 7% for social networks. Furthermore, customers are willing to provide additional information and personal data to insurers and their agents if there is a perceived benefit in doing so.
Add to this that insurers are already used to holding frequent, intimate conversations with their customers. The average auto policy will be renewed 13 times while a home policy will renew seven times. These create multiple touchpoints between agents and their customers as they review coverage and discuss options, leading to unique opportunities for the agent to offer additional services such as wealth management. This level of interaction is expected on the advice and wealth management front as well – nearly four in ten respondents in our consumer Wealth Management survey wanted to hear from their advisor more proactively. The insurance-policyholder relationship remains unique in financial services, and those carriers that went the extra mile for their customers yesterday are strongly positioned to talk to these customers about wealth management tomorrow.
P&C carriers and agents also have unique access to the underserved financial advice market. As net worth (and investable assets) climbs with age, financial advisors tend to work with a demographic that skews older. P&C carriers and agents, however, work across both the net worth and age spectrums as they provide personal insurance to America at large. The relationships this creates naturally open the door to wealth management opportunities for markets that are underserved today. This gives carriers a head start on capitalizing on the largest inter-generational wealth transfer in history, unlike their financial advisor counterparts who will have to first establish relationships with younger customers.
3. P&C agents have much in common with financial advisors
From geographic footprint to selling regulated products, there are more similarities between P&C agents and financial advisors than may seem evident at first glance.
Let’s begin with geographic footprint. Both financial advisors and insurance agents market themselves as “local.” Because of the nature of both the exclusive agent and independent agent channels, these agents are already in virtually every town, city and community in America. P&C carriers do not have to establish a local presence as they already have one.
These agents are also accustomed to selling regulated products. For those P&C carriers and agents that also sell life insurance and annuities, the differences are almost non-existent because of “best interest” and policy illustration regulations. Granted, additional governance will be necessary for P&C carriers, and additional licenses are necessary for agents. But the leap is not as far as one might imagine. In fact, there are many organizations that believe that agents will need to obtain securities licenses to sell fixed-indexed or equity-indexed annuities at some point in the future. Some are lobbying for this change.
4. Many insurers and agents have already taken small steps down this path
Finally, many P&C carriers with exclusive agents have already started down the road to offering wealth management products. Carriers like Farmers, Allstate, Country Companies and many of the Farm Bureau insurers already have limited broker/dealers that allow them and their agents to sell mutual funds, either as part of an insurance product or as a stand-alone investment, to their customers. We know of one, FBL Financial Group, who has created a Registered Investment Advisor and offers a full suite of investment advice and fee-based asset management. This service has been embraced by both its agents and customers.
A unique opportunity at a unique moment
In summary, there is a significant opportunity for P&C carriers to leverage the compressive disruption taking place in the market today and create a new asset-light revenue stream. The shift in customer expectation towards holistic financial advice paired with the industry’s durable, unique customer relationships, and its proven ability to sell complex, regulated products all create a unique path to growth. While some P&C carriers have approached this with success, we believe that the biggest results are yet to come. Through establishing or building on a comprehensive set of capabilities, P&C carriers can truly win in this market.
In our next blog in this series, we will explore the strategic principles and capabilities required to capture this opportunity.